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Critical discussion on the definition of assets and liabilities contained in the IASC Framework

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John D.
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  1. International Accounting Standards Committees and 40 standards and conceptual frameworks.
  2. Purpose of the framework.
  3. What the framework provides.
  4. The framework's definition of liabilities.
  5. The IAS 37 Provisions.
  6. Conclusion.

Although it may come as a surprise to many non- accountants, the accounting profession internationally has encountered a great deal of problems in arriving at robust definitions for the elements of financial statements. Defining assets, liabilities, and gains and losses (income and expenditure) has been particularly problematical. These definitions form the core of any conceptual framework that is to be used as a basis for preparing financial statements. It is also in this area that the International Accounting Standards Committees Framework for the Preparation and Presentation of Financial Statements has come in for some criticism. It seems that the current accounting treatment of certain items does not (fully) agree with definitions in the Framework. A major objective of the Framework is to exclude from the balance sheet items that are neither assets nor liabilities; and to make off balance sheet assets and liabilities more visible by putting them on the balance sheet whenever practicable.

[...] In future, there may yet be more introductions of new provisions for the accounting treatment of contingent assets and liabilities or at least some alterations to the IAS 37 might be mad 8.1 e. Some notable accounting organizations have already begun to request that IACS make amendments to the IAS 37 provisions because they are less practical under certain instances9. Furthermore, there is no doubt that the criticisms that have been made regarding the difference that exist between frameworks definitions and actual treatments of accounts could certainly lead to amendments to the framework as a whole10. [...]


[...] Summarily, it can be suggested that the IASC framework definitions of assets and liabilities depict a true and fair view of how assets and liabilities are accrued and incurred respectively. This sets out a clear foundation on which firms can present accurate financial statements regarding their financial position. However, the fact the definitions place substantial emphasis of legal ownership of assets and whether or not liabilities are present obligations or future commitments are two points which can be criticised or at least discussed. [...]


[...] However, most companies do not treat liabilities based on whether it is a present obligation or future commitment. This is more in conformity with the concept of placing assets and in this case, liabilities more visible on a company's balance sheet and placing them there whenever it is practical. This of course is not in adherence with the framework's definitions of assets and liabilities. The framework also accurately provides that all liabilities normally arise from a past event or transaction in a company's financial history. [...]

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